Hudson v Department for Work and Pensions

Fixed term contracts of employment can be either perfectly permissible arrangements or devices designed to circumvent employment protection legislation. Over the years, legislation has included anti-avoidance provisions. These intensified following Council Directive 1999/70/EC concerning the Framework Agreement on fixed term work concluded by The European Trade Union Confederation, The Union of Industrial and Employers Confederations of Europe and The European Centre of Enterprises with Public Participation. The Directive was implemented in this country by the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (the Regulations) which were made pursuant to section 45 of the Employment Act 2002. The Regulations came into force on 1 October 2002.

This case is concerned with the situation where an employee is employed under successive fixed term contracts. The basic provision is to be found in Regulation 8, the material parts of which state:

“(1)

This regulation applies where –

(a)

an employee is employed under a contract purporting to be a fixed term contract, and

(b)

the contract mentioned in sub-paragraph (a) has previously been renewed, or the employee has previously been employed on a fixed term contract before the start of the contract mentioned in sub-paragraph (a).

(2)

Where this regulation applies then, with effect from the date specified in paragraph (3), the provision of the contract mentioned in paragraph (1)(a) that restricts the duration of the contract shall be of no effect, and the employee shall be a permanent employee, if –

(a)

the employee has been continuously employed under the contract mentioned in paragraph 1(a), or under that contract taken with a previous fixed term contract, for a period of four years or more, and

(b)

the employment of the employee under a fixed term contract was not justified on objective grounds –

(i)

where the contract mentioned in paragraph (1)(a) has been renewed, at the time when it was last renewed;

(ii)

where that contract has not been renewed, at the time when it was entered into.

(3)

The date referred to in paragraph (2) is whichever is the later of –

(a)

the date on which the contract mentioned in paragraph (1)(a) was entered into or last renewed, and

(b)

the date on which the employee acquired four years’ continuous employment.”

Part 5 of the Regulations is headed “Exclusions”. Regulation 18 provides:

“(1)

These Regulations shall not have effect in relation to a fixed term employee who is employed on a scheme, designed to provide him with training or work experience for the purpose of assisting him to seek or obtain work, which is either –

(a)

provided to him under arrangements made by the Government, or

(b)

funded in whole or in part by an institution of the European Community.

(2)

These Regulations shall not have effect in relation to a fixed term employee whose employment consists in attending a period of work experience not exceeding one year that he is required to attend as part of a higher education course.”

Clearly the intention was to exclude certain fixed term contracts sanctioned by public authorities and to encourage the promotion of schemes for training or work experience which might not otherwise be made available.

Mrs Tracy Hudson worked for the Department of Work and Pensions (DWP) under successive fixed term contracts. The first, which came after a long period of unemployment, ran from 24 April 2006 and was for a fixed term of one year. It was offered pursuant to a Government scheme. At the end of the 12 months, the contract was extended for a further two years to expire on 23 April 2009. I take the subsequent history from the judgment of the Employment Tribunal (ET):

“The extended contract was due to expire on 23 April 2009 and ordinarily it was not permitted for such contracts to be further extended. However, in the claimant’s case an exception was made taking into account a number of factors such the present economic climate which had made it more challenging than usual for a candidate in the claimant’s position to secure employment in the open market but also the fact that the claimant had demonstrated particular expertise in her role and the respondent was experiencing significant business volume and really needed to retain her skills. It was however agreed that during the coming twelve months efforts would be made to ensure that the claimant gained the knowledge and competence to gain permanent employment within the department. There would be regular reviews to discuss progress, the claimant would be encouraged to apply for vacancies and support would be given in applications, preparation and mock interviews. All of this was discussed and confirmed at a meeting on 22 April 2009 …

In October 2009 the claimant was successful in securing a further fixed term appointment to the post of Diary Administrative Support Officer and commenced this new employment on 19 October 2009. She secured this appointment in open competition. The contract was for a fixed term running for 18 months.”

It can be seen from this history that, by April 2010, Mrs Hudson had been working for the DWP for four years pursuant to successive fixed term contracts. Two months later she wrote to management asking for confirmation that she was now a permanent employee pursuant to Regulation 8. This elicited the reply that she remained a fixed term employee because, although she had four years’ continuous employment, the period from April 2006 to October 2009 did not count under Regulation 8 because it was excluded by Regulation 18.

Following an unsuccessful resort to the grievous procedure, Mrs Hudson commenced proceedings in the ET for a declaration as permitted by Regulation 9(5). Her application was rejected by Employment Judge Gaskell on 7 April 2011. He held that Mrs Hudson had initially been working under a scheme that came within Regulation 18. He concluded (at paragraph 9.1):

“Regulation 18 states that the regulations shall not have effect in relation to a fixed term employee employed on an excluded scheme. There is, in my judgement, no basis to conclude that this amounts to anything other than a wholesale exclusion of such employees including the exclusion of rights which might otherwise be accruing during the first four years of employment. I accept the respondent’s submission that to find otherwise produces an absurd result and one which would be a positive disincentive to employers to offer on-going employment to employees whose initial employment was under the terms of an excluded fixed term contract. I therefore conclude that if the claimant’s employment between April 2006 and October 2009 were subject to the Regulation 18 exclusion then her time service for the purposes of Regulation 8 would not commence until 19 October 2009.”

Mrs Hudson appealed to the Employment Appeal Tribunal (EAT). On 3 May 2012 Mr Recorder Luba QC (sitting alone) allowed her appeal. His reasoning on the central issue is contained in the following passage:

“26.

… It seems to me it is the right approach that exclusions should be construed narrowly. I am satisfied that the wording of Regulation 18(1) is concerned with the present circumstances of the employee. That is to say, her circumstances in relation to the fixed term contract under which they are presently employed … Had it been the intention of the draftsman that the exclusion in Regulation 18 should apply not only to the current fixed term contract of employment but also to earlier fixed term contracts of employment, it would have been quite straightforward for Regulation 8 to have specifically provided that the previous fixed term contracts referred to in that sub-regulation did not include fixed term contracts such as those covered by Regulation 18.

27.

… The correct answer … in this case is in my judgment that the employee did not presently hold a contract of employment captured by Regulation 18 and that nothing in Regulation 8 prevented her from relying on previous periods of employment that would have been captured by Regulation 18 – for the purposes of obtaining the right contained in Regulation 8.”

Mr Recorder Luba granted the DWP permission to appeal to this Court.

Although this is not a case in which it is suggested that the Regulations fall short of being a proper implementation of the Directive, it is helpful to begin with the Directive. Recital (14) states:

“The signatory parties wished to conclude a framework agreement on fixed term work setting out the general principles and minimum requirements for fixed term employment contracts and employment relationships; they have demonstrated their desire to improve the quality of fixed term work by ensuring the application of the principle of non-discrimination, and to establish a framework to prevent abuse arising from the use of successive fixed term employment contracts or relationships.”

It can be seen from that that the Directive had the twin purposes of prohibiting discrimination against those working under fixed term contracts and preventing the abusive use of such contracts. The Framework Agreement is annexed to the Directive. The Preamble recognises that

“fixed term employment contracts respond, in certain circumstances, to the needs of both employers and workers.”

Clause 1 of the Framework Agreement reiterates the two purposes to which I have referred. Clause 2 headed “Scope”, provides:

“1.

This agreement applies to fixed term workers who have an employment contract or employment relationship as defined in law, collective agreements or practices in each Member State.

2.

Member States after consultation with the social partners and/or the social partners may provide that this agreement does not apply to:

(a)

initial vocational training relationships and apprenticeship schemes;

(b)

employment contracts and relationships which have been concluded within the framework of the specific public or publicly supported training, integration and vocational retraining programme.”

Clause 4 prescribes the principle of non-discrimination and clause 5 is concerned with measures to prevent abuse. It anticipates that Member States would adopt one or more of the following measures: (a) objective reasons justifying the renewal of fixed term contracts; (b) the maximum total duration of successive fixed term contracts; and (c) the number of renewals of such contracts.

The Directive and the Regulations were considered by the Supreme Court in Secretary of State for Schools v Fletcher [2011] ICR 485, [2011] UKSC 14. The following passages from the judgment of Lady Hale are pertinent:

“9.

It is important to understand that the Fixed-term Directive is not directed against fixed-term contracts as such …

10.

… [the Framework Agreement recognises] that ‘fixed-term employment contracts respond, in certain circumstances, to the needs of both employers and workers’ and that they ‘are a feature of employment in certain sectors, occupations and activities which can suit both employers and workers’ but the substantive provisions of the Framework Agreement do not attempt to define the circumstances in which fixed-term employment is acceptable. Instead they concentrate on preventing or limiting the abuse of successive fixed-term contracts, the abuse being to disguise what is effectively an indefinite employment as a series of fixed-term contracts, thus potentially avoiding the benefits and protections available in indefinite employment …

…

27.

The United Kingdom could have chosen to implement the Directive by setting a maximum number of renewals or successive fixed-term contracts, for example by limiting them to three. It could equally have chosen to implement the Directive by setting a maximum duration to the employment, for example by limiting it to nine or ten years in total. It is readily understandable why the alternative route of requiring objective justification after four years was taken; this is more flexible and capable of catering for the wide variety of circumstances in which a succession of fixed-term contracts may be used. Unless a very short maximum total had been chosen, it is more favourable to employees than the alternatives. But the fact that the alternatives would have been equally acceptable ways of implementing the Directive is yet another indication that the target is not fixed-term employment as such.”

In the course of their submissions, Mr Adkinson emphasised paragraphs 9 and 10, Miss Andrews paragraph 27.

Both counsel came armed with authorities prepared to make submissions on the law relating to the interpretation of statutes. For my part, I do not think such sophistication is necessary in this case. We are not in the territory of approaching interpretation so as to ensure that domestic law reflects Community law (Litster v Forth Dry Dock and Engineering Company Ltd [1990] 1 AC 546). Nor, in my judgment, are we concerned with ambiguity leading to absurdity (R (Confederation of Passenger Transport UK) v Humber Bridge Board [2004] QB 310). What counsel have described as potential absurdities are, in my view, better described as anomalies and there is nothing unusual about statutory provisions producing anomalies at the margins. I intend to approach the task of interpretation by considering the natural meaning of the words used in the context of the Regulations as a whole, keeping in mind their purposes.

If Regulation 8 stood alone, it is plain that Mrs Hudson would come within it. At the time of her application to the ET she could say: “I am an employee employed under a fixed-term contract and I was previously employed on a fixed-term contract before the start of the current one”. However, Regulation 8 does not stand alone. Part 5 of the Regulations provides for “Exclusions”. The point which lay at the heart of the reasoning of Mr Recorder Luba is that the exclusion of Government training schemes and the like is drafted in terms of an employee who “is employed on a scheme”. Thus, it is said, when Mrs Hudson made her application she was not such a person because she was not currently so employed.

Any view of Mr Recorder Luba on statutory interpretation commands respect but on this occasion I think that he is incorrect. It seems to me that the exclusion enshrined in Regulation 18 pervades “These Regulations”, that is to say, each and every one of them. It disapplies Regulation 8 in relation to a fixed-term period under a scheme regardless of when the scheme began or ended. In reaching this conclusion, I attach importance to two particular matters. First, Regulation 19 contains an exclusion in relation to agency workers. The primary reason for that is that the Directive itself treated agency workers as exceptionally excluded because they were to be dealt with in a different instrument (Framework Agreement, Preamble). That surely resulted in the total disapplication of the Regulations (including Regulation 8) to agency workers, whether the agency work is current or completed. The language of the agency workers exclusion is the same as that used in Regulation 18:

“… these Regulations shall not have effect in relation to employment under a fixed-term contract where the employee is an agency worker.” (Emphasis added).

I do not consider it significant that in Regulation 18 the reference is to “a fixed-term employee”, whereas in Regulation 19 it is to “employment under a fixed-term contract”. To find significance in that difference would be to attribute an overdeveloped subtlety to the draughtsman. As a matter of definition, a “fixed-term employee” is simply an “employee who is employed under a fixed-term contract” (Regulation 1(2)). If Regulation 19 is, as I believe, a total disapplication of the Regulations, so, in my judgment, is Regulation 18.

Secondly, it is important to keep in mind that the Directive and the Regulations treat fixed-term contracts as capable of being either detrimental or beneficial to employees. They are detrimental, in particular, when they are discriminatory or abusive. On the other hand, they have the potential to enhance employment opportunities, in particular within the context of Government-sponsored schemes. In my view, there is force in what Employment Judge Gaskell said in the ET. The construction contended for by Miss Andrews would have the potential to disincentivise employers from participating in such schemes. Miss Andrews submitted that Regulation 8 should be viewed differently because, of the different approaches made available to Member States by clause 5.1 of the Framework Agreement, Parliament has adopted the objective justification mechanism, so that it is inappropriate to allow purposive or policy considerations to drive the approach to construction: it is at the point of justification that the distinction is to be made between “good” and “bad” fixed-term contracts. I do not agree with this submission. An employer who participates in a Government scheme should not be in the position of having to await the decision of an ET before knowing whether or not time spent on a particular fixed-term contract counts for the purposes of Regulation 8. What Lady Hale said in Fletcher (at paragraph 27) was not directed specifically at Regulation 18.

It follows from what I have said that I would allow this appeal and restore the decision of the ET.

I have read in draft the judgments of the Vice President and Dame Janet Smith. There is merit in both constructions and although the analysis of Dame Janet has given me pause for thought, I prefer the construction of Regulation 18 adopted by the Vice President.

The fixed-term regulations do two principal things. First, they provide that a fixed-term employee shall not be subject to less favourable treatment than a comparable permanent employee unless that difference in treatment can be objectively justified.  Second, they create a right, by Regulation 8, whereby a person employed on successive fixed-term contracts for a period of four years or more will, absent any objective justification, automatically have his or her fixed-term contract converted into a permanent contract. It is common ground that regulation 18 prevents an employee from being entitled to claim either of these benefits during the period when he or she is working on the relevant training scheme.  Even if the training carries on for more than four years, Regulation 8 will not bite.  But what is the position if the employee is employed by the same employer at the end of the training scheme on a new fixed term contract? Can the fixed-term training contracts count towards establishing the four year period? Or are they to be ignored for all purposes under the regulations?

Dame Janet Smith thinks that they can count. Regulation 18 provides that the regulations are denied effect with respect to a person who is employed under a relevant scheme; it does not deny their effect with respect to a person who was so employed. The use of the present tense means that Regulation 18 has a temporal effect; the regulations are disapplied only whilst the employee is working under a relevant training scheme contract, not thereafter.  Consequently, once he or she has ceased employment under the scheme and takes up a new fixed-term contract with the same employer, the regulations apply and fresh life is breathed into the fixed term contracts performed under the scheme. They are now fixed-tem contracts falling within the meaning of the regulations and can therefore count towards the four year period

I accept that there is nothing absurd about such a construction, although the result would, I think, be surprising.  But I do not believe that it is the better reading of the provision, particularly when Regulation 18 is read in the context of the other two exclusions, in Regulations 19 and 20, applying to agency workers and apprentices respectively.

More specifically, my reasons for rejecting this approach are as follows. First, I think that the more natural reading of the language is that the regulations are disapplied for good; the employee cannot pray in aid, for the purpose of establishing rights under the regulations, any fixed-term contract which he or she had when employed pursuant to a training scheme.  In my judgment if Parliament had intended to limit the effect of the exclusion so as to catch the relevant fixed-term contracts only whilst the employee was employed under the scheme, it would have been easy to employ that language to say so.

 Second, like the Vice President, I put weight on the fact that the agency worker exclusion in Regulation 19 is in similar terms.  Yet the history of these provisions strongly suggests that it was the intention of the draftsman to take agency workers out of the arrangements altogether.  The preamble to the Framework Agreement, which is put into effect by the Directive, states in terms that the Agreement does not apply to “those placed by a temporary work agency at the disposition of the user enterprise.” It was envisaged that agency workers would be subject to a different regime, and that is indeed now the case.  The Agency Worker Regulations 2010, which give effect to Directive 2008/104/EC on Temporary Agency Work, deal with the same twin objectives of eliminating discrimination and encouraging permanent employment, but in a different manner to the fixed-term provisions.  The only reasonable inference was that the draftsman intended to take agency workers out of the regulations for all purposes.  If that is so, regulation 18 must surely be similarly interpreted.

Dame Janet suggests that regulation 19 would not apply in any event because an agency worker will not have a contract with the hirer.  That is usually the case, but not inevitably so.  It may exceptionally be possible to imply a contract between the hirer and the agency worker where that is necessary properly to reflect the legal nature of the relationship: see eg James v Greenwich Borough Council [2008] IRLR 302.  Where that is the case, the two sets of regulations could apply to the same employee and that is a situation which the draftsman was in my view seeking to avoid. 

Third, the purpose of converting fixed-term contracts into permanent ones is, as the Directive makes clear, to prevent abuse arising from successive fixed-term contracts. In my judgment it is not an abuse to allow the employer who offers training or apprenticeships, and then is willing to take on those trainees or apprentices into full time employment, to be subject to precisely the same rules as would have been applied to him if they had done their training or apprenticeship elsewhere.  I agree with the Vice President that to do otherwise might provide some disincentive to an employer from providing such training opportunities at all.  And whether that be so or not, it might be considered unjust that having provided these training opportunities, these employers are treated less favourably than those who have not.

Finally, the effect of the alternative construction is that for practical purposes  Regulation 18 would be virtually a dead letter so far as acquiring the right to permanent employment under Article 8 is concerned. It would only bite so as to prevent the trainee from claiming the right to a permanent contract whilst he remains a trainee. In fact training will virtually never continue for more than four years and therefore this situation will in practice simply not arise.  Moreover, even if it did, the former trainee could immediately claim the benefit of Regulation 8 as soon as he was offered a job as a trained worker because the fixed term training contracts would count for the purpose of building up Regulation 8 rights. The position would typically be the same with respect to apprentices under Regulation 20. In practice, therefore, these Regulations, which fall under the part of the regulations headed “Exclusions” would not have that effect.  They would only exclude trainees and apprentices from the operation of the equal treatment principle and not from Regulation 8.

For these reasons, I agree with the Vice President that the appeal should succeed. 

I have read in draft the judgment of Lord Just Maurice Kay and gratefully adopt his exposition of the facts and the statutory provisions.  Unfortunately, however, I must respectfully disagree with his conclusion. I am of the view that Mr Recorder Jan Luba QC was correct in his interpretation of the effect of Regulation 18.

I agree with everything which Maurice Kay LJ has said up to and including his paragraph 12. That means that I agree with him that the scope of the Regulations (however we interpret regulation 18) is within that permitted by the Directive.  The regulations are entirely a matter of domestic law and must be construed as such. I also agree with him that whichever construction is correct, that favoured by Maurice Kay LJ and Employment Judge Gaskell or that favoured by Mr Recorder Luba, the results will not give rise to absurdities, merely some possible anomalies in unusual factual circumstances.  Thus we are free to construe the words of the regulations according to their ordinary natural meanings.

I agree that, if Regulation 8 stood alone, Mrs Hudson would come within it. She could say that she was, at the time of her application, an employee employed under a fixed term contract (satisfying Regulation 8(1)(a)) and had previously been employed on fixed term contracts before the start of the present contract (satisfying Regulation 8(1)(b). She could also satisfy regulation 8(2)(b) in that, taken together, her fixed term contracts had, by the time of her application, lasted more than 4 years (Regulation 8(2)(a). In short, she would be entitled to a declaration that she was a permanent employee, subject only to the question of whether the use of successive fixed term contracts could be justified on objective grounds (Regulation 8(2)(b).

But Regulation 8 does not stand alone. Regulations 18-20 provide exclusions in three different sets of circumstances. Regulation 18 is headed “Government Training Schemes etc”. Regulation 19 is headed “Agency Workers” and Regulation 20 is headed “Apprentices”. We are concerned only with Regulation 18. The three fixed term contracts on which Mrs Hudson was employed between April 2006 and October 2009 were all contracts available under a scheme designed to provide the employee with training or work experience for the purpose of assisting him to seek or obtain work and were provided under arrangements made by the Government. I will refer to them as ‘scheme contracts’. The fixed term contract on which she was employed after 2009 and at the time of her application was not a scheme contract.  

Regulation 18(1) provides that the regulations shall not have effect to a fixed-term employee who is employed on a scheme contract.  I agree with Maurice Kay LJ that that means the regulations as a whole.  It means that any person who is employed on a scheme contract falls outside the scope of these regulations.  But at the time of her application Mrs Hudson was not employed on a scheme contract and in my view is not excluded from reliance on the regulations.  I think that the point is a simple as that.

It is said that the true effect of Regulation 18 is that any scheme contract is to be excluded from consideration under the regulations; the period such a scheme contract covered should not count towards the total of four years required under Regulation 8(2)(a).  But, that is not what Regulation 18 says. Regulation 18 is concerned to exclude a person (a fixed term employee) not a period of time.  The regulation excludes a fixed term employee who is employed on a scheme contract. It does not refer to any past contracts.  If Parliament had intended that any past fixed term contracts which had been scheme contracts should not count towards the qualifying period of 4 years, it would have been easy to say so.  All Parliament appears to me to have done under Regulation 18 is to prevent persons who are currently employed on scheme contracts from taking advantage of the Regulations. But, in my view, if an employee comes within Regulation 8(1)(a) because he or she is currently employed on a fixed term contract which is not excluded by regulation 18 because it is a scheme contract, he or she can take advantage of the regulations and can rely on previous contracts (with the same employer of course) which were scheme contracts to build up his or her four year requirement.

Maurice Kay LJ does not suggest that this result gives rise to absurdity.  It may be said that it does not appear to be expected that a person who is employed on scheme contracts for 3.5 years and is then employed on a non-scheme contract should be able to apply for a declaration that she is a permanent employee only six months after the commencement of the non-scheme contract.  But it is not absurd.  An employer who has sufficient regard for an employee that, after 3.5 years experience of her under a scheme contract is willing to take her on under a non-scheme fixed-term contract is not seriously disadvantaged if that person is able to count those earlier contracts towards the four year requirement. In any event, the employer may well be able to justify the use of the further fixed term contract after the scheme contracts have ended.  I would think that such circumstances are fairly rare; scheme contracts will usually run for only a year or two. The facts here (3.5 years of scheme contracts) were said to be most unusual.  As I said, this interpretation gives rise to no absurdity but possibly to an unexpected result in unusual factual circumstances. 

Maurice Kay LJ draws support for his conclusion from making a comparison between Regulation 18 and Regulation 19 which applies to agency workers. I agree with him that the effect of Regulation 19 is completely to exclude agency workers from the regulations, as was required by the preamble to the Framework Agreement.  I also agree that the language of Regulation 19 is similar in form to that of Regulation 18: the regulations do not have effect in relation to employment under a fixed term contract where the employee is an agency worker.  But, with respect, the similarity of language does not help with the construction of  Regulation 18.  Regulation 19 means that any person who is currently a fixed term agency worker cannot apply under the regulations; so it has the same effect as Regulation 18.  Regulation 19 says nothing about the previous fixed term contracts which would have to be counted up to reach the required four years.  If an applicant had been employed by a company X on a series of fixed term contracts for say four years, and was then employed by an agency who contracted to supply his services to X, the applicant would not be able to use these regulations because he would be excluded by Regulation 18.  If he was employed as an agency worker on 3 one year fixed term contracts (contracted out to Company X) and was then taken on by Company X on a fixed term contract, he would satisfy regulation 8(1)(a) but he would not be able to count the previous fixed-term contracts.  That would not be because those contracts were excluded under Regulation 19 but because the contract directly with X was not a renewal of his previous one year contracts; a different employer would be involved. 

Nor, with respect, do I agree with Maurice Kay’s second supporting reason.  I do not think that the construction I have proposed would operate as a disincentive to employers to take on employees under scheme contracts.  Scheme contracts are intended to be a short term arrangement, usually lasting one or two years. Mrs Hudson’s position was exceptional. So, most employers who contemplate taking on an employee under a scheme contract will in fact bring the relationship to an end after one or two years. If the employer decides to take on the employee under a non-scheme fixed term contract (possibly to see how the employee gets on working without the degree of supervision which would normally apply under a scheme contract), the employer would still have time and opportunity to bring the relationship to an end and would not find himself suddenly ‘saddled’ with a permanent employee he did not want.  Provided that the employer keeps the employee’s position under review, there can be no disincentive to scheme contracts.

In short, I consider that the words of Regulation 18 are clear. They simply exclude for the regulations employees who are currently employed on a fixed term scheme contract.   They have no other effect.

For those reasons I would dismiss the appeal.